10 Liquid Bank Stocks With Highest Dividend Yields

NEW YORK ( TheStreet) -- While bank stocks have seen flat performance so far this year, TheStreet's periodic analysis of the highest dividend payers in the sector shows that most of the highest yielding, actively traded names are down. In addition, the highest yielding name is under extra pressure, expecting a serious regulatory order to be handed down soon.

Looking at the 10 highest-yielding bank stocks with average daily trading volume of at least 50 thousand shares - using data supplied by SNL Financial - the bank stock with the highest dividend yield is Hudson City Bancorp ( HCBK), at 6.07% based on Friday's closing price of $9.88 and a quarterly payout of 15 cents a share.

The shares declined 14% during the first four days of March, after the company filed its annual 10-K report with the Securities and Exchange Commission, disclosing that it expected its main subsidiary Hudson City Savings Bank to "become subject to an informal regulatory enforcement action in the form of a memorandum of understanding," or MOU, with the Office of Thrift Supervision.

The MOU is expected to require Hudson City to reduce its interest rate risk and reliance on wholesale borrowings, possibly resulting in "a decrease in the size of the balance sheet and a material charge to earnings."

Despite the drag on the shares with the coming order, Hudson City's earnings have comfortably supported the dividend through the credit crisis. The problem is that in a low rate environment -- with low demand for mortgage loans -- the company's net interest margin (the difference between its annualized average yield on loans and investments and its average cost of deposits and borrowings) narrowed to 1.70% in the fourth quarter from an already-low 2.27% a year earlier.

According to the Federal Deposit Insurance Corp., the aggregate net interest margin for all U.S. banks and thrifts during the fourth quarter was 3.71% and 60% of institutions reported improved net interest margins from a year earlier.

As of December 31, Hudson City's deposits made up only 45% of the company's total liabilities.

Additional information regarding Hudson City, including analyst reaction to the MOU disclosure, is discussed later in this story.

Meanwhile, here's our take on the 10 actively traded bank stocks with the highest dividend yields. While analysts have a strong neutral bias for half the group, it is important for income seeking investors to note that all but two of these companies fully supported their dividends with earnings during 2010, and none owe government bailout funds.

10. United Bankshares

United Bankshares ( UBSI) of Charleston, W.V. has seen its stock decline 4% year-to-date, closing at $28.11 Friday. Based on a quarterly payout of 30 cents, the shares have a yield of 4.27%.

The company had $7.2 billion in total assets as of December 31, operating 111 United Bank branches in West Virginia, Virginia, Washington, D.C., Maryland and Ohio

In December the company announced a deal to acquire Centra Financial Holdings of Morgantown, W.V., in an exchange of shares valued at $187 million. Centra Financial has roughly $1.4 billion in total assets, with 15 branches in the four markets. The deal is expected to be completed in the third quarter.

At the Morgan Stanley North American Financials Conference on Feb. 2, United Bankshares CFO Steven Wilson said the merger would be 5% accretive to earnings and would save about $8.8 million in expenses during 2012, according to a FactSet transcript provided by SNL. One-time merger-related expenses are expected to total $15 million.

United Bankshares CEO Richard Adams said that the company would seek additional M&A opportunities in its market area.

The company earned $72 million, or $1.65 a share, during 2010, improving from $67.3 million, or $1.55 a share, during 2009. The return on average assets (ROA) for 2010 was 1.04% according to SNL, which was tied for the best ROA among this group of ten holding companies. The dividend payout ratio - dividends on common shares divided by earnings per share after extra items - was 73% according to SNL.

The shares trade for 15 times the 2012 consensus earnings estimate of $1.90 a share among analysts polled by Thomson Reuters. All nine of the sell-side analysts covering United Bankshares have neutral ratings on the stock. David Darst of Guggenheim securities said after the company announced its fourth-quarter results that the shares appeared "fully valued relative to peers."

9. Renasant Corporation

Shares of Renasant Corporation ( RNST) of Tupelo, Miss. closed at $15.81 Friday, down 7% year-to-date. Based on a quarterly payout of 17 cents, the shares have a dividend yield of 4.30%.

The company had $4.3 billion in total assets as of December 31 and operates 62 offices in northeast Mississippi, northern and central Alabama, northwest Georgia and middle Tennessee.

Renasant made a small acquisition on February 4, picking up the failed American Trust Bank of Rowell, Ga. from the FDIC for "a discount bid of $18.3 million, picking up roughly $145 million in assets and $222 million in deposits, with 14 offices in North Georgia. The FDIC agreed to cover 80% of losses on $94 million of the roughly $97 million in loans acquired, and the agency held most of American Trust Bank's nonperforming loans.

During 2010, Renasant earned $31.7 million, or $1.38 a share, improving from $18.5 million, or 87 cents a share, in 2009. The 2010 ROA was 0.44% and the dividend payout ratio was 49%, which was lowest among this group of 10 holding companies.

The shares trade for 13 times the 2012 consensus earnings estimate of $1.26 a share. Out of 11 analysts covering Renasant Corporation, two rate the shares a buy, while the remaining analysts all have neutral ratings.

After the American Trust acquisition, Mark Muth of Howe Barnes Hoefer & Arnett reiterated his neutral rating on Renasant, saying that the three branches picked up in the American Trust Bank acquisition would "help build out a more convenient distribution platform in a demographically attractive footprint."

8. TrustCo Bank Corp NY

Shares of TrustCo Bank Corp NY ( TRST) of Glenville closed at $6.03 Friday, down 4% year-to-date. Based on a quarterly payout of 7 cents, the shares have a dividend yield of 4.35%.

The company had $4 billion in total assets as of December 31, operating 134 offices mainly in New York State, but also in Florida, Vermont, Massachusetts and New Jersey.

During 2010, TrustCo earned $29.3 million, or 38 cents a share, increasing from $28.1 million, or 37 cents a share in 2009. The ROA for 2010 was 0.77% and the dividend payout ratio was 67%.

While elevated provisions for loan losses have placed a drag on earnings through the credit crisis, main subsidiary TrustCo Bank has been stable, with nonperforming assets - including loans past due 90 days, nonaccrual loans and repossessed assets - ranging between 1.4% and 1.5% of total assets during 2010.

There are no sell-side analysts covering TrustCo. One self-described "long-suffering shareholder" told TheStreet that he had a patient outlook, "grinding out the dividends."

The investor points out, and public documents confirm, bank CEO Robert J. McCormick's regular salary more than doubled to $880,000 for 2009 from $380,000 in 2008 after the bank's return on average equity (ROE) dropped below the 13% minimum required for to receive a bonus equivalent to 40% of his regular salary.

7. First Niagara Financial Group

Shares of First Niagara Financial Group ( FNFG) of Buffalo, N.Y. closed at $14.27 Friday, returning 3% year-to-date. Based on a quarterly payout of 16 cents, the shares have a dividend yield of 4.48%.

The company had $21.1 billion in total assets as of December 31, operating 257 branches in Upstate New York and Pennsylvania. During 2010, the company earned $140.4 million, or 70 cents a share, improving from $67.3 million in net income available to common shareholders in 2009, when the company paid $12 million in expenses related to the Troubled Assets Relief Program, or TARP, which it exited in May 2009.

First Niagara's 2010 ROA was 0.87% and the company's dividend payout was 81%.

The main driver of First Niagara's earnings growth has been its acquisitions, which have more than doubled the company's size over the past two years. The two major acquisitions in 2010 were Harleysville National Corporation in April, which included 83 branches in the eastern Pennsylvania, and NewAlliance Bancshares in August, which included 88 branches in Connecticut and Massachusetts.

The shares trade for 12 times the 2012 consensus earnings estimate of $1.15 a share. Among the 11 analysts covering First Niagara, five rate the shares a buy, while the remaining analysts all have neutral ratings.

6. F.N.B. Corporation

Shares of F.N.B. Corporation ( FNB) of Hermitage, Pa. closed at $10.11 Friday, returning 4% year-to-date. Based on a quarterly payout of 12 cents, the dividend yield on the shares is 4.75%.

The company had $9 billion in total assets as of December 31, with 223 branches in Pennsylvania and Ohio and 62 consumer finance offices in Tennessee and Kentucky.

F.N.B. earned $74.7 million, or 65 cents a share, during 2010 improving from net income to common stockholders of $32.8 million, or 32 cents a share, the previous year. In 2009 the company reported $8.3 million in dividends and expenses related to its participation in TARP, which it exited in September of that same year.

F.N.B's 2010 earnings also improved because its provision for loan losses declined to $47.3 million from $66.8 million in 2009.

The company's 2010 ROA was 1.04% and its dividend payout ratio was 74%.

The shares trade for 12 times the 2012 consensus earnings estimate of 83 cents a share. One of the 10 analysts covering F.N.B Corporation rates the shares a buy, while the other nine analysts all have neutral ratings.

5. People's United Financial

Shares of People's United Financial ( PBCT) of Bridgeport, Conn. closed at $12.67 Friday, down 8% year-to-date, which is the second-worst performance among this group of 10 holding companies, after Hudson City. Based on a quarterly payout of 16 cents, the dividend yield for People's United is 4.89%.

The company had $25 billion in total assets as of December 31, with "nearly 340 branches located in Connecticut, Vermont, New York, New Hampshire, Maine and Massachusetts," according to its annual 10-K filing.

People's United announced on January 20 an agreement to acquire Danvers Bancorp ( DNBK) of Danvers, Mass. for $493 million in stock and cash. Danvers Bancorp had $2.9 billion in assets as of December 31.

People's United completed two acquisitions on December 1, including LSB Corp of North Andover, Mass., for $94.8 million in cash and Smithtown Bancorp of Hauppauge, N.Y, for $56.4 million in cash and stock. LSB had total $780 million in total assets and seven branches. Smithtown Bancorp had $2.3 billion in assets and 31 branches.

These acquisitions followed the purchase of the failed Butler Bank of Lowell Mass., from the FDIC in April and the purchase of specialty lender Financial Federal Corp. for $699 million in cash and stock in February 2010.

The company earned $85.7 million in 2010, or 24 cents a share, declining from $101.2 million, or 30 cents a share, in 2009. The 2010 results included $23.3 million in merger-related expenses.

The ROA for 2010 was 0.56% according to SNL Financial and the dividend payout was 260%. While that's a high payout ratio, the company can be expected to perform better after it absorbs the acquisitions, and it was very strongly capitalized as of December 31, with a tangible common equity ratio of 14.12% according to SNL. Among this group of 10 holding companies, Hudson City Bancorp had the second highest TCE ratio, at 8.77%.

People's United Bancorp's shares trade for 16 times the 2012 consensus earnings estimate of 79 cents a share, which is by far the highest forward P/E among this group of 10 holding companies. Out of sixteen analysts covering the company, six rate the shares a buy, while the remaining analysts all have neutral ratings.

4. Tower Bancorp

Shares of Tower Bancorp ( TOBC) of Harrisburg, Pa. closed at $22.61 Friday, returning 4% year-to-date. Based on a quarterly payout of 28 cents, the dividend yield on the shares is 4.95%.

The company had $2.7 billion in total assets, as of December 31, with 27 offices in Pennsylvania and Maryland. Tower Bancorp completed its acquisition of First Chester County Corp. on December 10 for $49.9 million. Then on December 21, Tower completed a common stock offering that netted $48.2 million after expenses.

According to a revised 8-K filed with the SEC on February 16, Tower Bancorp earned $1.1 million during 2010, or 15 cents a share, compared to $3.7 million, or 72 cents a share in 2009. The 2010 results included $2.9 million in restructuring charges.

The company was founded in 2005, and it has never earned enough on an annual basis to support the current dividend. Still, analysts like what they see, with three out of five rating the shares a buy and the other two recommending investors hold the shares, which trade for 11 times the 2012 consensus earnings estimate of $2.07 a share.

On February 25, Janney Montgomery Scott analyst Richard Weiss initiated his company's coverage of Tower Bancorp with a buy rating, citing the company's "growth rate, high energy management team, and a good presence in attractive markets across southeastern and central Pennsylvania." Then on February 28, Frank Schiraldi initiated Sandler O'Neill's coverage of the company, saying with a neutral rating, saying his firm "would like to see greater clarity on the earnings front before getting more constructive on the stock."

3. Valley National Bancorp

Shares of Valley National Bancorp ( VLY) of Wayne, N.J. closed at $13.57 Friday, down 5% year-to-date. Based on a quarterly payout of 18 cents, the dividend yield is 5.31%.

The company had $14.1 billion in total assets as of December 31, with 198 branches in northern and central New Jersey and in New York City.

Net income for 2010 was $131.2 million, or 81 cents a share, improving from net income available to common shareholders of $96.5 million, or 64 cents a share, in 2009, when the company reported $19.5 million in dividends and accretion on $300 million in TARP money, which was repaid in three installments. Valley National completed its TARP repayment in December 2009.

Valley's 2010 ROA was 1.08% and its dividend payout ratio was 89%.

SNL reported that at the Keefe Bruyette & Woods Regional Bank Conference in Boston on March 2, Valley CEO Gerald Lipkin said his company and other lenders in its market area learned during the 1980's that "it's not really a good thing to do a lot of speculative real estate," and that "in the 20 years that followed, virtually no speculative real estate took place in New Jersey and New York City."

He added that the subprime residential lending that has affected several inner city areas in New Jersey didn't take place in the counties where Valley National does most of its lending, including Essex and Morris counties.

Valley National's shares trade for 15 times the 2012 consensus earnings estimate of 81 cents a share. Analyst opinion on the one-year outlook for the shares is mixed, with two out of nine analysts rating the shares a buy, while five have neutral ratings and two recommend investors sell the shares.

2. New York Community Bancorp

Shares of New York Community Bancorp ( NYB) of Westbury closed at $17.75 Friday, down 5% year-to-date. Based on a quarterly payout of 25 cents, the shares have a dividend yield of 5.63%.

The company had total assets of $41.2 billion as of December 31, with 276 branches, including 209 in the New York City area and in New Jersey, along with a total of 67 in Florida, Ohio and Arizona, which were acquired mainly through the acquisition of some of the assets and liabilities the failed AmTrust Bank of Cleveland from the FDIC in December 2009 and the smaller Desert Hills Bank of Phoenix in March 2010.

During 2010, New York Community earned $541 million, or $1.24 a share, increasing from $398.6 million, or $1.13 a share, during 2009. The 2010 results included $ 11.3 million in FDIC indemnification income and the 2009 results included $139.6 million in bargain purchase gains from the AmTrust acquisition.

During 2010, New York Community reported $183.9 million in mortgage banking income, which is pretty much a new business for the company, acquired as part of the AmTrust acquisition. The AmTrust deal greatly broadened the company's revenue base, while the company maintained its credit focus, with most of the loan portfolio collateralized by "apartment buildings that feature below-market rents."

New York Community's 2010 ROA was 1.46% and its dividend payout ratio was 81%.

The shares trade for 12 times the 2012 consensus earnings estimate of $1.48 a share. Out of 18 analysts covering New York Community Bancorp, 11 rate the shares a buy, seven have neutral ratings and one analyst recommends selling the shares.

1. Hudson City Bancorp

Shares of Hudson City Bancorp of Paramus, N.J. closed at $9.88 Friday, down 21% year-to-date, with the company's net interest margin - discussed on page one of this article - and expected regulatory memorandum placing a drag on the shares and boosting the dividend yield on the stock to 6.07% as of Friday's close.

Hudson City had $61.2 billion in total assets as of December 31, with 135 branches throughout New Jersey, as well as in the New York City area and Fairfield County, Conn.

Net income for 2010 was $537.2 million, or $1.09 a share, increasing from $527.2 million, or $1.07 a share in 2009. The 2010 ROA was 0.80% and the dividend payout ratio was 55%.

While there certainly is uncertainty in the market over the headline risk associated with the expected OTS memorandum of understanding and possible restructuring, Hudson City was strongly capitalized as of December 31 with a tangible common equity ratio of 8.77% and had the second-lowest payout ratio among this group of 10 holding companies.

Following Hudson City's 10-K filing, which included the company's announcement of the expected MOU, David Darst of Guggenheim Securities reiterated his firm's neutral rating on the shares, saying the main issue for the company was "$30 billion of fixed rate funding and declining earning asset yields."

Based on a scenario where Hudson City would deleverage by $7.5 billion and restructure another $7.5 billion in funding, Darst estimates the company could improve its net interest margin to 2.25%, while incurring $1.3 billion in restructuring charges. This was among several scenarios the analyst discussed, and was the scenario with the highest charge and best improvement in the NIM. Darst's price target for Hudson City is $12.

The shares trade for 11.5 times the 2012 consensus earnings estimate of 86 cents a share. Out of the 15 analysts covering the shares, 13 have neutral ratings and two recommend selling.

-- Written by Philip van Doorn in Jupiter, Fla.

>To see these stocks in action, visit the 10 Liquid Bank Stocks With Highest Dividend Yields portfolio on Stockpickr.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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